Mortgage Tips for First-Time Home Buyers
Buying a home and securing a mortgage for the first time can be a frightening experience. Your new home will likely be the largest purchase and investment you’ve ever made. Your mortgage choice today will affect your finances tomorrow and for many years to come. It’s important to understand the mortgage process to avoid any mistakes that will affect your financial future.
Even with safeguards provided by legislation, you will want to have at least a basic understanding of home purchase mortgages. There are lots of different packages for the prospective first-time homebuyers, dependent on your current situation and what you anticipate will happen in the future. It's important to look over the small print to establish if you are eligible, and whether they meet your needs. Beware of mortgage deals packed with incentives – read any and all agreements carefully and understand all the payment schedules.
Loan Types
Probably one of the most popular starter mortgages is a fixed rate mortgage. With a fixed rate mortgage, the interest rate and the payment will remain the same throughout the length of the mortgage. These are commonly available for periods of 30, 20, 15 or 10 years, depending on the lender and your needs. Rates will usually be slightly higher than current market levels as the lender will have to anticipate future market fluctuation.
Fixed rate mortgages are ideal for first-timer homebuyers who are planning to live on the property for more than 10 years and/or prefer stability in their monthly mortgage payments and budget. It's similar to knowing what your rent will be for several years - many home owners find this reassuring, especially when dipping their foot in the real estate waters for the first time.
But if you plan on staying in the home for less than ten years, a short-term mortgage might be the better choice for you. If you are comfortable with your mortgage payments changing or feel that the current fixed rate available is too high and does not reflect what interest rates will be in the future, you want to opt for an adjustable or variable rate mortgage.
With an adjustable or variable rate mortgage, the interest rate and the payments remain fixed for a specified number of years, and then after this initial fixed rate period, the interest rate and payments will fluctuate with the current market. The initial change may be limited to a specified amount over a specified period of time in the mortgage agreement.
Adjustable and variable rate mortgages are perfect if you need initial certainty, but anticipate more income to cope with changes in the future. It can also give you more control if intend to upgrade or move once circumstances change.
Special Programs
There are many federal, state and even local programs offered by mortgage lenders that provide additional benefits to first-time buyers. They may have reduced interest or points if it is your first home or if you haven't owned in the last three years. There are also preferential deals for first-time buyers that will help you secure the credit you need to get into a home.
If you are a U.S. Military veteran and intend to buy a first home, you are well cared for with special loan offers. The Division of Veterans Affairs has established a program that guarantees some of the most popular first-time buyer mortgages (such as the 15 or 30 year fixed rate loans).
There are a number of mortgage companies and brokers that want to help you find a loan. But never forget, that it’s a serious commitment on your part and will affect your future plans. It is in your best interest to have a basic knowledge of everything presented to you when looking for mortgage and you should check out all your options before choosing the right deal for you.